All over the developed world, people are living longer, and their financial needs in retirement are gradually climbing. Obviously, you want to do everything you can to ensure you live out the golden years in comfort and security. Unfortunately though, a lot of people tend to make certain common blunders when they’re planning for their retirement. Here are some of the most costly, and some advice on how you can avoid them.
Planning According to Outdated Assumptions
Most people who are nearing retirement age have some idea of how much assets they’ve been able to accumulate, how much they’ll need to spend on retirement, and how long the money they have will last. However, many people fail to check those numbers against the relevant market conditions. The global economy’s in a very uncertain state, and with this in mind, you need to be challenging certain pieces of conventional wisdom regarding GDP, inflation rates, annual rate of return, and so on. Any one of these macroeconomic factors can quickly undermine a potentially solid retirement plan. With this in mind, people who are soon to retire need to think about updating their plans through a number of returns assumptions, rate inflation, and a number of other macro factors. If the numbers don’t balance out, talk to a professional.
Failing to Diversify
Many retirees, having worked at the same company for several years, tend to accumulate a mass of company stock in their portfolio. Some people choose not to diversify because they don’t want to have to learn about the ins and outs of the stock market, or they feel safe in the fact that they know their company better than others. Others simply neglect to do so, and don’t learn about the importance of diversification until it’s far too late. If the date’s getting close and you’re worried about your lack of diversification, getting some professional assistance is probably your best bet. More and more businesses are beginning to subscribe to services that help them diversify employee portfolios, which you can learn about at this Investor Services About Us page. From a risk management perspective, a retirement investment portfolio shouldn’t have any more than 10% of a single stock. This way, if any investments you’re holding go wrong, your portfolio as a whole will be protected.
Setting the Date Too Soon
You may be eagerly looking forward to your retirement, but working even two years past the date you’ve planned on can work wonders for your retirement security. 66 is defined as the typical retirement age by Social Security, but around half of Americans don’t wait for this milestone. Work until your defined full retirement age, and you can avoid any early-filing reductions from Social Security. While you’re at it, you can keep on pumping money into your savings plan, generating additional balances that can be put to work in the current market. At the end of the day, every extra year of working income is a year in which you can leave your retirement balances untouched. This can boost your income massively in the long run.